Don’t blame Apple when Lala shuts down. Their model was flawed. Music is not free

Apple purchased Lala.com back in December 2009. So far, the service has been running, unchanged. However, I predict it will shut down in the near future, and their technology will somehow integrate with iTunes. When this happens, I know people are going to scream bloody murder. Everyone loves hating on Apple.

However, Lala’s business model was totally flawed and could not succeed on its own. They would “sell” you a song for 10 cents, and bet that you listened to it infrequently enough that they made money. However, people want to own their music, put it on their iPods, and listen to it over and over.

So while it will seem like Apple is shutting down a well loved service, they are actually stopping it from bleeding money, and will use it to add great new features to their ecosystem. 

People think they are entitled to free music. But history has shown that no one can give you media for free. Illegal sites have tried and failed (Napster, allofmp3). And even ad based services are switching to pay (Hulu). Lala’s model was interesting, a nice experiment, but it was bound to fail.

Background: Lala is a great service that lets you listen to music on the web for free. But there’s a catch, you can only listen to every song one time.

After that you have a choice: you can pay $0.10 to play the song on the web only (no iPods). Lala pays the record labels a fraction of a penny every time you play the song, and they hope to come out ahead (it’s a gamble).

Or you pay them $0.89 to own and download the song, in which case you might as well just buy it from iTunes.

I think Apple will use Lala to build a web based iTunes store with free samples. And then sell you the full song to sync with your iDevice. This is the only model that will work.

35 comments

  1. You kind of glossed over the argument for why you think "Lala’s business model was totally flawed." I’m curious to hear more. I actually think that the Lala model is pretty smart. They developed a low barrier of entry to getting you into their for-pay ecosystem. People tend to listen to the same songs over and over and not experiment and try a wide variety of music.Also, do you think that Apple will use Lala’s technology of syncing your iTunes library to the cloud to consume online?

  2. Updated. They were licensing music for web only playback (which sucks) and betting users wouldn’t listen to it often enough for it to cost them more than 10 cents. It was basically a bet on user behavior. But people listen to their favorite tracks over and over

  3. Is it known whether a "web album" license was paid out to the copyright owner on a per listen basis or a flat fee?

  4. <html><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">I doubt that Lala will respond publicly to anything, now that they are under the Apple umbrella.<div><br></div><div>Thinking about this some more, Lala has a freemium model: they give away free music and then hope to sell you some more. The twist is that even the people buying music at 10 cents per song might be losing Lala money.<br><div><div></div></div></div></body></html>

  5. Yep, definitely a freemium model. I’m still not convinced that they would lose money on the 10 cent ‘web songs’. The licensing cost per play of interactive streaming is pretty tiny. And from what it sounds like, they worked some pretty serious mojo with the labels.

  6. I liked Lala’s "Music Mover." It moved all my mp3’s from itunes to my Lala library. It’s more of a nice thing to have, and not a necessity.I’m sure whatever Apple does with Lala, it’ll be a good implementation.

  7. I’d love to see iTunes become cloud-based, so I could purchase using iTunes on my MBP, for example, and have iTunes on my iMac be aware of that purchase. Right now keeping content purchased by two different users (my wife and myself) on three different Macs is more of a pain that it needs to be. I’m keeping my fingers crossed in hopes that Apple will fold in some of the Lala goodness and make iTunes an always-synched, always-ready hub for delivering all forms of content, regardless of the Apple device I’m using to access it.

  8. Sachin, there’s plenty of sound logic in this argumentation. Instead of attempting to pointlessly refute that, let’s assume that it’s correct. In that case, I’m left with a question. A first different (possibly rhetorical) question to get us there; would this not have been clear to Apple during the acquisition? The revenue, burn and projections should have been fairly clear, even with a realistic margin of error. That said, the question that remains is what did Apple make this acquisition for, then? The technology? The people? Thanks, NickW

  9. As long as my music in iTunes can play through the cloud, I don’t care if you call it Lala or iTunes. Do you think this will happen?

  10. You really think people love to hate on Apple? Wall Street is all over APPL’s nuts and last I checked, every foo in the valley was rabidly checking his fB on an iPhone/iPad.

  11. I think Lala has nailed it. Playlists put together by other users help me discover music.When I hear about an song/album I like, I can listen to the whole song/album and decide if I want it. Beats the hell out of :30 sec samples.If I’m undecided, I can save the best songs to a list (Like my list "good music to peep") for future consideration for a mere .10 a song. Very low barrier and it helps me remember what I liked.If I like the song I can very simply and elegantly buy it.From then on I can listen to it online or on my device of choice.They have provided me with the full-lifecycle of music discovery, so I buy a vast majority of my music from them.iTunes just plain blows and provides none of the above. Hopefully the good from Lala will replace the suck of iTunes…time will tell

  12. Spotify has been massively successful in Europe so far. A library of around 6m songs and totally free to access any song whenever you like on any computer. Every half hour they play a 30s advert.Spotify are giving music for free without any problem whatsoever and have been for almost a year now throughout Europe. They are proving it can work.

  13. "Or you pay them $0.89 to own and download the song, in which case you might as well just buy it from iTunes."I find Amazon Mp3’s are a much nicer way to buy music. For me, anyway…

  14. <html><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">I don’t know a ton about spotify’s product or model since we can’t use them here in the US. however, they do have a ton of money from investors and i don’t think they are actually profitable. we’ll see how it goes for them in the long run<br><div><div></div></div></body></html>

  15. I’m surprised nobody has mentioned Pandora yet. Pandora has created a pretty good business "licensing music for web only playback". I don’t really see how Lala is much different here. I certainly think they have the capacity to monetize at least as well, and possibly even better. If LaLa was a more stable service – basically I don’t trust Apple enough to spend money buying anything on Lala now – and had the same delivery mechanisms that Pandora does (iPhone app, AIR app, etc) I could easily see myself spending money on it.

  16. <html><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">Yeah good point about Pandora. But they aren’t the same. You can’t pick what songs you play and play anything on demand. And just to be able to skip more songs, you have to upgrade to their pro plan.<div><br></div><div>But thinking more on that front, I am in favor of a monthly fee, all you can consume music model like Rhapsody and Zune. I’m not sure why they haven’t taken off. But in those cases, you are paying for your music.<br><div><div></div></div></div></body></html>

  17. I think the reason subscription services never really took off is that people have come to think of tracks as something you pay to own (iTunes, Amazon) or something you listen to for free with advertising. Essentially you’re paying to take it with you. With subscription services you’re paying not to hear advertising. Paying for music that you can’t take with you doesn’t fit the consumer’s mental model.It’s also worth noting that the first batch of Windows Media-powered music stores didn’t exactly provide seamless user experience. The business model is important, but it doesn’t matter one iota if the service isn’t easy to use. Initially iTunes offered a better user experience, but it has become a bloated app that gets in its own way. Time for a rethink, and time for the cloud.

  18. I luv lala. I like the idea of .10 per song on the web. Its fine with me. I really only listen when I am on my computer anyway.I can’t help but wonder how it will turn out. As a matter of fact I am listening to the new album by Skillet on lala right now.

  19. Sachin, First of all, thanks for Posterous, I discovered it two days ago and am completely loving it. Great job! Second, I’d like to chip in about Spotify and add to David’s comment. I recently read a interview of their CEO and it seems they have roughly 300 thousand members paying £10 a month out of 7 million subscribers — roughly 5%. They recently came up with an update that lets you import your iTunes library and use it on the go including your iPhone without ever using iTunes. Clearly a long way to go before that happens en masse but as a heavy user myself, and knowing how every single person in my office uses it for 4 hours a day, I think they have a great product up their sleeves. One small correction though, it’s more like a 30s advert after every 1 or 2 songs.

  20. <HTML> <HEAD> <TITLE>Re: Posterous (sachin) | Don’t blame Apple when Lala shuts down. Their model was flawed. Music is not free</TITLE> </HEAD> <BODY> <FONT FACE="Lucida Grande"><SPAN STYLE=’font-size:11pt’>I’ve really not noticed it to be every 1/2 songs but I shall take your word for it. Either way, I think the Spotify model has (at least based on early numbers) proven that a free music model is viable.<BR> <BR> It’s a great service they are providing anyway.<BR> <BR> </SPAN></FONT><FONT SIZE="1"><FONT FACE="Arial"><SPAN STYLE=’font-size:9pt’></SPAN></BODY></HTML>

  21. I just got a message logging into my LaLa account at 11:40pm Pacific Time tonight…. "The Lala service will be shut down on May 31, 2010" Good Prediction! lol. What are the winning Lotto Numbers this week?????

  22. <html><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">wow, it’s too bad but I knew this would happen<br><div><div></div></div></body></html>

  23. I think people are missing the main point: Lala sold their music for cheaper that ITunes….usually around $7.49 for a full LP. So they bought it and shutting down the competition, period.

  24. I’m extremely surprised to seeing such a kneejerk negative reaction to a Freemium business model without thinking through what the model might entail. Along with this would be the implication that Geoff and his team didn’t think through their model. Knowing the rates that we pay, and knowing the rates that Pandora pays, the $.10 web play model was actually a very good business model in almost all cases. Lala was shut down not because of Apple having a problem with their business model, but simply politics between Apple and the labels. The labels feel trapped by Apple being their largest digital music retailer and are scared with what would happen if they also owned the web play model. I don’t necessarily blame them, that’s just the politics of the situation that led to an amazing service being shut down.

  25. Apple killed lala before lala could kill itunes. Apple has become that which it ridiculed: another idea-killing monopoly.

  26. You said, when talking about Lala’s pricing options, that you could buy the web song for $.10, "Or you pay them $0.89 to own and download the song, in which case you might as well just buy it from iTunes."That is a DUMB comment. Considering the best and most popular songs on iTunes are $1.29, by paying $.89 on Lala and then using their easy "Lala Music Mover" to transfer songs right into your iTunes library, you save $.40 PER SONG! That’s over 30% in savings! Why would anyone not buy from Lala? Their songs are of the EXACT same quality as those in iTunes, yet they cost $.40 less! Even if a song is $.99 on iTunes, if you buy from Lala at $.89 per song, you can basically get 11 songs for the price of 10 iTunes songs.So why is Lala REALLY closing? Well, Apple realized that another company could produce just as good a product [a downloadable song] for 30% less than they could. So what do they do? They crush them. Only in America lol…PS: Get your facts straight before you write a stupid article so that regular folks like us don’t have to point out all the flaws of your argument. You say that there’s no point to download an $.89 song because you can instead download a $.99 song!!! It’s like every time you want to buy a song, you’re throwing a dime away [and quite possibly a quarter and nickel along with it]!!! THIS IS AMERICA…AND YOU’RE AN IDIOT!!!!!

  27. Mr. Andy,If apple was going to crush lala, they would simply add them to the laundry list of contractual "do-nots" (EULA) that come as baggage with all new devices. They acquired lala because it was a good investment, and because it will become the infrastructure for launching iTunes online. I use iTunes (and pay extra) because of the simplicity, convenience, and high-availability. "THIS IS AMERICA…AND YOU’RE AN IDIOT!"PS: What is America? The web? You sir, are an idiot. Sachin makes good points all-around.

  28. I hate greed, coming from Apple, or the defunct imeem buyer, or any. If it did not make the millions they wanted, fix it ! Or reduce their greed instead of removing a great site. :- (

  29. The idea that media cannot exist by being free is the most ridiculous thing I’ve ever heard. For decades, radio and tv in the US were 100% free and people working in that industry thrived with many becoming rich. The advertising market is huge.Once cable spread in the 80s, greed grew in US media and they started charging extra just because they could. Monopolies tend to do that sort of thing. Pay-per-view became the worst example. Now that mainstream US media is officially a former-monopoly they all better get used to the idea of providing free media. Maybe Hollywood stars will have to stop expecting $20 million per movie, but I think they’ll learn to get by. If they refuse to take a pay cut, there are quite a few actors who’ll take their place even if they got paid minimum wage.

  30. The basic premise of the initial comments seems off-base. Was the problem that web playback sucked or that it was so good that people listened to too many $.10 songs? Can’t have it both ways. Also, why should I have just bought it from iTunes instead? What’s better about buying from iTunes? I personally think it’s awful software and an awful interface. It also often cost more, as noted in other comments.Lala’s community was really awesome and I found myself buying songs from them that I never would have otherwise come across, as well as enjoying the 10 cent streaming songs. It was great and I wish that Google had purchased and built upon it instead of Apple buying and simply killing it (to keep Google away from it, methinks).Apple used to be kind of cool. Now they are as bad as MS ever was with their business practices and it will be amusing when undo themselves in the same way that they did with their fanatic platform control in the early PC era. Too bad that we can’t have their creative cool without their elitist arrogance and strongarm tactics.Time wounds all heels….

  31. <html><head></head><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; ">Chris, just to argue one of your points:<div><br></div><div>Google has shut down almost every company it has acquired. They are not the savior of good technology.<br><div><div></div></div></div></body></html>

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